Summary
In American Life Accident Ins. Co., supra, relied upon in Burger, declaratory judgment jurisdiction was approved with only the parties being the regulated party and the administrator of the Bureau of Unemployment Compensation.
Summary of this case from Sterling Drug v. WickhamOpinion
No. 31701
Decided December 7, 1949.
Unemployment Compensation Act — Individual compensated solely on commission basis, not in employment, when — Section 1345-1, General Code — Uniform Declaratory Judgments Act — Section 12102-1 et seq., General Code — Court may entertain declaratory judgment action against administrative agency, when — Further necessary or proper relief may be granted, when — Section 12102-8, General Code — Action against state employee, not action against state, when.
1. Where services are performed by an individual who is compensated solely on a commission basis and is the master of his own time and efforts and whose remuneration is wholly dependent on the amount of effort he chooses to expend, such individual is not in employment within the meaning of the Unemployment Compensation Act of Ohio, whether he be considered an independent contractor or an employee excepted by Section 1345-1, General Code.
2. Although the Uniform Declaratory Judgments Act, Section 12102-1 et seq., General Code, is not available to circumvent an adverse decision of an administrative agency, an action for a declaratory judgment may be entertained by a court in the exercise of its sound discretion, where the action is within the spirit of the declaratory judgments act, a real justiciable controversy exists between adverse parties, and speedy relief is necessary to the preservation of rights which may otherwise be impaired or lost. ( Schaefer v. First National Bank of Findlay, 134 Ohio St. 511, and Radaszewski v. Keating, Exrx., 141 Ohio St. 489, approved and followed.)
3. Where a court has entered a declaratory judgment in favor of one of the parties to an action therefor, it has authority under Section 12102-8, General Code, to grant any further necessary or proper relief.
4. An action against the administrator of a state bureau for a declaratory judgment pronouncing the rights, status or other legal relations of the plaintiff with reference to a statute is not an action against the state, even though other incidental relief is granted.
APPEAL from the Court of Appeals for Franklin county.
On February 28, 1945, appellee, hereinafter called insurance company, filed an amended petition against appellant, hereinafter called administrator, for a declaratory judgment, the original petition having been filed on December 14, 1944. By entry the various successors of the original administrator were substituted as parties defendant. The petition prayed for a declaration that the agents of insurance company, who solicit applications for insurance and collect premiums, are not in employment within the meaning of Section 1345-1, General Code.
The prayer of the amended petition is "for a declaratory judgment that said agents of the plaintiff, are not in employment within the meaning of Section 1345-1, General Code; that the plaintiff was not and is not liable for contributions to the unemployment compensation fund of Ohio in respect to the compensation paid by it to said agents; that the amounts heretofore paid by the plaintiff to the Ohio unemployment compensation fund be repaid to the plaintiff with interest; that the defendant be enjoined from levying, assessing or collecting, or attempting to levy, assess or collect from plaintiff any such contributions or otherwise compelling the plaintiff to comply with the Unemployment Compensation Act of Ohio in respect to matters set out herein; and for such other and further relief to which the plaintiff may be entitled in the premises."
To the amended petition administrator filed an answer, and to such answer insurance company filed a reply.
There was no real dispute in the pertinent evidence with reference to the determination of the questions involved in the case.
The evidence shows that insurance company, a Kentucky corporation, is engaged in the business of writing industrial life insurance. Its policies are written on the lives of people who pay for their insurance on a weekly basis and the insurance is sold and the premiums collected by agents who receive no compensation of any kind except on a commission basis. The agents' compensation consists of 20 per cent of their debit collections and 20 times on the increase in new business. They are not given any drawing accounts or advancements and must earn their commissions before receiving them. The agents are not limited as to what persons they may solicit, although as a practical matter they are usually assigned to a district. In addition to their collections they make settlements without extra compensation to themselves, for the sole purpose of building up good will. They have no written contracts or rules or regulations, and insurance company does not fix or regulate the hours during which they must work or fix any minimum number of hours for their services. They are not required to come to any meetings or to report to any office, although, as a matter of practice, most of them do come to "pep" meetings and come to the offices of insurance company to make reports.
The agents are not restricted with reference to carrying on other business or even selling other insurance and, although at times superintendents of insurance company go out with agents, that is usually for the purpose of helping them with their business and not for the purpose of in any way directing or controlling them. The agents may work in the daytime or at any other time and their time of working is entirely of their own volition, without direction or control from insurance company. The amount of their compensation results solely from their own efforts and insurance company is interested only in the results obtained. Although insurance company can discharge the agents, the large turnover among them is mostly the result of their quitting because of being discouraged.
The agents are not limited as to territory, although in practice they stay in a section so as to make it easier for them to see people, make collections and write new business. Some of the agents scatter their business over a wide territory but most of them do not. About one per cent of the agents are given some allowance for travel on business of insurance company but receive no salary or compensation therefor.
Administrator required insurance company to make contributions in respect to these agents, which the company made under protest for the years 1940 to the first two quarters of 1946, inclusive, as follows:
1940 $ 3,907.86 1941 $ 4,892.68 1942 $ 2,139.88 1943 $ 2,187.52 1944 $ 2,479.55 1945 $ 2,161.42 1946 (two quarters) $ 1,597.87 $ 19,366.78
On December 2, 1943, insurance company filed an application for refund or adjustment under Section 1345-2 (e), General Code, of the contributions it had made for the year 1940 in the amount of $3,907.86.
On January 10, 1944, administrator denied the application on the ground that the agents were not excepted under the provisions of the Unemployment Compensation Act of Ohio. No appeal was taken from that decision.
On November 1, 1944, the then administrator concurred in that former ruling.
On October 3, 1946, insurance company filed an application for refund of its contributions for the years 1941 to 1946 (two quarters), inclusive. No action has been taken by administrator on this application.
The Court of Common Pleas declared that insurance company is not liable to make contributions to the unemployment compensation fund in behalf of the agents in question, and held, incidentally thereto, that insurance company is entitled to recover the contributions it made in the sum of $19,366.78.
Upon an appeal on questions of law and fact the Court of Appeals held that insurance company is not liable for contributions to the unemployment compensation fund, and is entitled to recover all contributions made except for the year 1940, or a total of $15,458.93.
The case is before this court upon an allowance of a motion to certify the record.
Messrs. Wright, Harlor, Purpus, Morris Arnold, for appellee.
Mr. Herbert S. Duffy, attorney general, and Mr. George C. Steinemann, for appellant.
The instant case presents three questions, the answers to which must determine the solution of the problem before us.
The first of these questions is whether the agents of insurance company are covered by the Unemployment Compensation Act of Ohio and, therefore, whether their employment obligates insurance company to contribute to the unemployment compensation fund.
The second question is whether the instant action for a declaratory judgment is proper or allowable.
The third question is whether the instant action constitutes an action against the state, prohibited under the law.
Are the agents of insurance company covered by the Unemployment Compensation Act?
The Unemployment Compensation Act of Ohio imposes upon employers the obligation to make contributions to the unemployment compensation fund for those who are in their employment. There are many situations ordinarily conceived to constitute employment excepted from the coverage of the act.
Section 1345-1, General Code, provides in part as follows:
"The term employment shall not include:
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"Service performed by an individual for one or more principals who is compensated on a commission basis, and who in the performance of the work is master of his own time and efforts, and whose remuneration is wholly dependent on the amount of effort he chooses to expend * * *."
If the services of the agents of insurance company come within the meaning of the foregoing enactment then those agents are not covered by the Unemployment Compensation Act. It seems to us that there could not be a clearer example of what employees were meant to be excepted from the Unemployment Compensation Act than the agents in the instant case.
It is not of importance whether the agents are considered as independent contractors as was done in the case of Commercial Motor Freight, Inc., v. Ebright, Treas., 143 Ohio St. 127, 54 N.E.2d 297, 151 A.L.R., 1321, or whether they are considered as employees, for, in either event, they come squarely within the language of Section 1345-1 quoted above.
There is no dispute or controversy in the evidence that the entire compensation of the agents is on a commission basis. As stated, they receive no advance payments, drawing accounts or any reward except a percentage of the amount of the collections and of the amount of their sales.
The evidence likewise shows, without controversy, that the agents are masters of their own time and efforts. They can work daytime or evenings, any day or days, part time or not at all. Although as a matter of practice they report to the company offices and go to "pep" meetings, they are not required to do either and there is no penalty if they fail so to do. Insurance company is interested only in the results the agents obtain and although it can discharge them, most of the turnover in agents results from resignations.
The remuneration of the agents is wholly dependent on the amount of effort they choose to expend. If they work diligently they make more collections and more sales and thus receive more commissions, and, on the other hand, if they work sparingly their remuneration is less for the sole reason that they have fewer commissions from collections and sales. Therefore, without regard to their legal status as independent contractors or employees they are, by the language of the statute, wholly and completely excepted from the status of employment for the purposes of coverage by the Unemployment Compensation Act.
The second question concerns the propriety of an action for declaratory judgment. It is argued that the instant action is against the state to recover money paid as contributions to the unemployment compensation fund by insurance company in respect to these agents. On the other hand, it is argued that the action is one to determine the status of the agents under the statute and that the prayer for the recovery of the money is merely incidental to the main purpose of the action and, therefore, the action is proper.
Section 12102-1, General Code, reads:
"Courts of record within their respective jurisdictions shall have power to declare rights, status, and other legal relations whether or not further relief is or could be claimed. No action or proceeding shall be open to objection on the ground that a declaratory judgment or decree is prayed for. The declaration may be either affirmative or negative in form and effect; and such declaration shall have the force and effect of a final judgment or decree."
Section 12102-2, General Code, reads:
"Any person * * * whose rights, status or other legal relations are affected by a statute, municipal ordinance, contract or franchise, may have determined any question of construction or validity arising under the instrument, statute, ordinance, contract, or franchise and obtain a declaration of rights, status or other legal relations thereunder."
It seems clear that the instant action is one to declare the rights, status and other legal relations of the agents and of insurance company under the Unemployment Compensation Act, and that insurance company is one whose rights, status or other legal relations are affected by a statute. Therefore, insurance company may have determined its status with reference to the statute and may have a declaration of its rights thereunder. It seems obvious that this is the kind of a situation, if there were no other conditions, that is contemplated in the declaratory judgments statutes. However, it is urged that there is an equally serviceable and, therefore, exclusive procedure provided by law for a situation such as presented in the instant case, and that, therefore, an action for a declaratory judgment does not lie.
Section 1345-2 (e), General Code, provides that within four years after the date on which any contribution is paid an employer who has paid such may make an application for an adjustment thereof, and that if the administrator shall determine that such contribution or any portion thereof was erroneously collected he shall allow such employer to make an adjustment therefor in connection with subsequent contributions made by the employer and, if such adjustment cannot be made, the administrator shall refund the erroneously collected contribution, without interest, from the clearing account of the unemployment compensation fund.
It is further provided that the administrator may make such adjustment or refund on his own initiative.
Section 1345-4 (c) 4 G, General Code, provides that the employer shall be promptly notified of the administrator's denial of his application or the administrator's redetermination, which shall become final unless within 30 days after notification to the employer an appeal is taken to the Common Pleas Court of Franklin County.
The foregoing procedure could have been followed by insurance company and in fact was so followed with reference to the contributions of 1940, and the denial of the application by administrator became final for the reason that no appeal was taken therefrom.
In some jurisdictions it is held that, if there is a remedy provided by law which is equally as serviceable as an action for a declaratory judgment, such remedy is exclusive and an action for a declaratory judgment will not lie.
Whatever may be the rule in other jurisdictions, it is settled in Ohio that an action for a declaratory judgment may be alternative to other remedies in those cases in which the court, in the exercise of sound discretion, finds that the action is within the spirit of the Uniform Declaratory Judgments Act, that a real controversy between adverse parties exists which is justiciable in character, and that speedy relief is necessary to the preservation of rights which may be otherwise impaired or lost. Schaefer v. First National Bank of Findlay, Ohio, 134 Ohio St. 511, 18 N.E.2d 263; Radaszewski v. Keating, Exrx., 141 Ohio St. 489, 49 N.E.2d 167.
It is clear that the instant action, so far as it concerns the rights of insurance company with reference to contributing to the unemployment compensation fund on account of its agents, is within the spirit of the Uniform Declaratory Judgments Act; that there is a real controversy between insurance company and administrator which is justiciable in character; and that speedy relief is necessary to preserve the right of insurance company to refuse to pay contributions to the fund.
If the instant case were simply an action to recover money wrongfully paid, the action would not lie for the reason that it would not be within the spirit of the Uniform Declaratory Judgments Act. Likewise, if insurance company had utilized the procedure under Sections 1345-2 (e) and 1345-4 (c) 4 G, General Code, and had been defeated thereunder and no appeal had been taken, it could not circumvent the operation of the above acts by attempting to secure a declaratory judgment. That was the situation with reference to the contributions of 1940, and the Court of Appeals logically and correctly held that there could be no recovery of the contributions of that year. As to the subsequent years the instant action was brought within the time limit provided by Sections 1345-2 (e) and 1345-4 (c) 4 G and, therefore, was an alternative remedy to that provided by such sections and was allowable within the sound discretion of the court.
On October 3, 1946, insurance company filed a claim for refund of its contributions for the years 1941 to 1946 (two quarters), inclusive, on which no action has ever been taken by administrator, so that if the instant action were simply for a declaration of the rights and status of insurance company and it were decided that the agents were not in employment within the meaning of the Unemployment Compensation Act, administrator would be bound to refund the contributions made by insurance company for the period properly covered by the application of October 3, 1946.
We are of the opinion that as incidental to a declaration of insurance company's rights the court was justified in permitting a recovery of the contributions concerning which administrator had made no order.
Section 12102-8, General Code, provides in part:
"Further relief based on a declaratory judgment or decree may be granted whenever necessary or proper. The application therefor shall be by petition to a court having jurisdiction to grant the relief."
It seems obvious that in the interest of speedy justice it was proper that the court, having determined that insurance company was not obligated to pay contributions in respect to its agents, should then grant the incidental relief of awarding the wrongfully paid contributions to insurance company instead of compelling it to resort to the alternative remedy under the statutes.
Reference is made in the briefs and in argument to the case of Ohio Farmers Ins. Co. v. Heisel, Sr., 143 Ohio St. 519, 56 N.E.2d 151, as applicable to the question of the propriety of a declaratory action in the instant case, but we are of the opinion that there is no analogy between the Heisel case and the one with which we are concerned. The Heisel case held simply that a declaratory judgment action was not proper where the only question involved was whether an automobile was being driven with the permission of the owner. That presented an entirely different problem from the one we have as to the rights and status of an employer under a statute.
As to our third question, it is argued that the instant action is one against the state, and that the state is not subject to suit in its own courts without its express consent. That principle is unquestioned and it is also true that Section 16, Article I of the Ohio Constitution, is not self-executing and the state is immune from suit except as the General Assembly may provide by law. In the case of Palumbo v. Industrial Commission, 140 Ohio St. 54, 42 N.E.2d 766, this court held that an action against the state to garnishee the pay of a state employee is not authorized in the absence of legislation allowing the same.
It is argued that the instant action being against administrator is really one against the state and, therefore, unauthorized. We do not agree with that contention. In the first place, as we have said, the instant action is to declare and determine the rights and status of insurance company under the Unemployment Compensation Act. In order to determine that status it was essential to make administrator the party defendant. The main judgment in the case is simply a determination of insurance company's rights. In the Palumbo case, supra, there was an attempt to reach money which was a part of the general fund of the state, whereas in the instant action the money recovered as an incident of further relief following the declaration consisted of funds which belonged to insurance company and which were not in any general state fund but in the clearing account of the unemployment fund.
As we have suggested, if the instant action were simply an action for the recovery of money there would be some plausibility in the argument that it was an action against the state and, therefore, not permitted, but assuredly an action against a state employee to determine rights, liability or status is not prohibited because that employee happens to be the head of one of the administrative boards of the state. If it were otherwise it would mean that one could not mandamus a state officer to perform a clearly mandatory duty or one could not enjoin him from committing a patent and outrageously illegal act. A private citizen in such case would be helpless from unlawful, oppressive and outrageous conduct of a state official.
We are of the opinion that the Palumbo case is easily distinguishable from the instant case. A declaratory judgment being proper as to the rights and status of insurance company, the granting of incidental relief does not violate the principle of immunity of the state from suits in its own courts without its express consent.
The judgment of the Court of Appeals is affirmed.
Judgment affirmed.
WEYGANDT, C.J., MATTHIAS, HART, ZIMMERMAN and TURNER, JJ., concur.
This is an action for a declaratory judgment brought against the administrator of the Bureau of Unemployment Compensation of Ohio. Plaintiff seeks a declaration that its agents, who solicit applications for insurance and collect premiums, are not in "employment" within the meaning of the provisions of Section 1345-1, General Code, which is part of the Ohio Unemployment Compensation Act. By way of "further relief" plaintiff seeks an order directing that contributions heretofore made by the company in respect to these agents be refunded to it.
Plaintiff made contributions in respect to these agents in each of the years 1940 through 1945 and for the first two quarters of the year 1946.
Plaintiff had filed a claim for refund for the contributions for the year 1940. In 1944 the administrator denied that claim. No appeal was taken from that decision of the administrator. Thereafter on December 14, 1944, the company commenced this action.
The administrator contends that this action for a declaratory judgment cannot be maintained.
Plaintiff concedes that, under Section 1345-2 (e), General Code, he could apply to the administrator for an adjustment of its contributions on account of these agents at any time not later than four years after their payment; the administrator would then be required to determine whether such contributions were erroneously collected; and, if he so determined, the administrator would then be required either to make an adjustment on account of the contributions erroneously collected or to refund them.
Plaintiff concedes further that, under Section 1345-4 (c) 4 G, General Code, he could appeal to the Common Pleas Court of Franklin County from any decision of the administrator determining that part or all of the contributions on account of these agents were not erroneously collected. The statute further requires that such an appeal "shall be given precedence over other civil cases."
Plaintiff relies on the decisions of this court in Schaefer v. First National Bank of Findlay, Ohio, 134 Ohio St. 511, 18 N.E.2d 263, and Radaszewski v. Keating, Exrx., 141 Ohio St. 489, 49 N.E.2d 167. Those cases do determine that an action for a declaratory judgment may be maintained even if another remedy is available at law or in equity. However, both cases clearly recognize that such an action cannot be maintained except where "a speedy and immediate adjudication is essential to full protection of rights and interests" ( Schaefer v. First National Bank, supra, at 519), or "speedy relief is necessary to the preservation of rights that may be otherwise impaired or lost" ( Radaszewski v. Keating, supra, paragraph 3 of the syllabus).
In the opinion by Matthias, J., in Radaszewski v. Keating, supra, it is said on page 498:
"It is quite generally held that the jurisdiction of the court in declaratory judgment actions is not limited to cases in which no other remedy is available. In other cases, as stated in the opinion in Stewart, Gdn., v. Herten, Gdn., 125 Neb. 210, 249 N.W. 552, with the citation of numerous supporting cases, the rule announced is in substance that `proceedings for a declaratory judgment will not be entertained where another equally serviceable remedy has been provided for the character of the case in hand.' (Italics ours.)
"This pronouncement is in accord with the view expressed in the Schaefer case, supra, and with our conclusion in this case. It is quite apparent that in the situation presented in this case, there is not `another equally serviceable remedy.'"
In the instant case, the alternative remedy by application to the administrator and, if necessary, appeal to the Common Pleas Court of Franklin County would certainly appear to offer just as "speedy and immediate adjudication" and as "speedy relief" and be as "equally serviceable" a remedy as the plaintiff's action for a declaratory judgment in the Common Pleas Court of Franklin County.
This is not a situation where plaintiff's alternative remedy does not arise until someone elects to institute proceedings against him, as in the Schaefer case; or until the happening of some future event which might have a tendency to impair the rights of plaintiff as in the Keating case. Admittedly, the plaintiff in the instant case could, at any time within four years after the payments which he seeks to recover, apply to the administrator under Section 1345-2 (e), General Code, for the ultimate relief sought in this case and appeal, under Section 1345-4 (c) 4 G, General Code, from any adverse decision of the administrator denying part or all of the relief sought.
My conclusions therefore are:
1. An action for a declaratory judgment cannot be maintained where the plaintiff has another equally serviceable and speedy statutory remedy available at the time.
2. Under Sections 1345-2 (e) and 1345-4 (c) 4 G, General Code, an employer has such a remedy to recover contributions, claimed to have been erroneously paid on account of agents claimed not to be in "employment" within the meaning of Section 1345-1, General Code.
It might be argued that, when this action was commenced in December, 1944, plaintiff had no right to recover for the contributions to be made in 1945 and subsequent years. However, if, as plaintiff contends, the material facts with regard to its relation to these agents were the same in each of the years 1940 through 1946, then a favorable decision for plaintiff on an appeal from a decision of the administrator, rejecting plaintiff's claim for the years prior to 1945, would just as effectively determine the status of these employees, by way of res judicata for the years subsequent to 1944, as a decision in the declaratory judgments action.